Another insurance-linked investments manager has issued a statement regarding hurricane Isaac and any potential impacts from the storm on their portfolio of catastrophe bonds and other insurance-linked assets. ILS investment manager LGT Insurance-Linked Strategies are confident at this time that there will be no material impact to any of the cat bonds or financial insurance contracts (FICs) that they invest in.
In an update to clients the LGT ILS team said that; “Due to the fact that the tropical system remained of rather low intensity at landfall and has come onshore as a Cat 1 hurricane, we do not expect material impact to any of our cat bond or FIC investments.”

Hurricane Isaac remains a category 1 storm at the time of writing and is still causing significant impacts to areas around the Louisiana coastal counties, New Orleans and Baton Rouge. The storm slowed its forward motion and has managed to hold onto its hurricane status despite having made landfall some time ago. This is quite unusual and will mean that losses from Isaac will be higher than would normally be expected for a category 1 hurricane, however will likely not be high enough to impact the cat bond market too much. Pelican Re still remains the cat bond with the highest risk of attachment due to Isaac.

The LGT update raises an interesting point though, and one which could affect many of the ILS and cat bond fund investment managers, mark-to-market losses. The LGT ILS team said; “Given the timing of the event (close to month-end price fixing), there is potential for a slight mark-to-market impact due to the uncertainty in valuing exposed positions until more clarity is available on the insurance industry loss and final appraisal of the damage after the storm has passed.”

Whenever a catastrophic event threatens a catastrophe bond or the wider insurance-linked securities market there is generally a level of nervousness amongst holders of bonds, some of whom may seek to sell for less than they normally would. This can lead to mark-to-market losses for holders of bonds who understand that there is no risk of them being triggered and want to hold onto their positions. Given that when Isaac approached the U.S. coastline a couple of days ago there could have been as much as $6 billion worth of cat bonds with exposure to hurricanes hitting somewhere on the Gulf coast, there will likely have been some selling of bonds. The way last years hurricane Irene impacted secondary market cat bond prices was a really good example of this. We don’t expect that the Isaac effect will have been anywhere near as pronounced but as LGT said, mark-to-market impacts are possible.